This article first appeared in The Edge Malaysia Weekly on November 28, 2022 - December 4, 2022

Although interest rates are inching up, the returns from money put in fixed deposit are still relatively low. It is far from the 10% that banks used to offer in the 1980s, and even lower than the average return that the Employees Provident Fund (EPF) delivers to its contributors.

In such an environment, sophisticated investors seek good-quality debt paper issued by corporations. Om Holdings Ltd, a company with a dual listing in Australia and Malaysia, is one of the better managed companies and its debt paper would be of a high investment grade.

The company, which is in the smelting of manganese and silicon, announced last week that its wholly-owned subsidiary, Om Materials (S) Pte Ltd, was issuing up to A$30.9 million in bonds. The proceeds will be used to part-finance the remaining 25% stake in Om Materials (Sarawak) Sdn Bhd and OM Materials (Samalaju) Sdn Bhd from Samalaju Industries Sdn Bhd.

The bonds, which carry a coupon of 10%, are open for subscription to certain key management personnel, managers, employees and sophisticated investors.

Among the subscribers are Low Ngee Tong, the executive chairman and chief executive of Om Holdings, and parties related to him. Low has been credited with the success of the company and extending its business to China, Malaysia and South Africa.

The company felt that the proposed bond issuance was the most efficient and expedient way to raise funds considering the current market conditions and the fact that it would not be dilutive.

While the company’s justification to issue the bonds is valid, why is it restricting the offer to only a certain group of investors?

Why not extend the offer to its shareholders as well? There may be some who qualify as high net worth individuals and are able to subscribe for the debt paper.

Even though fixed deposit rates are rising, it is not easy to get high investment-grade debt paper yielding 10%.

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